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The ASEAN Trading Link

The ASEAN Trading Link is a stock trading link established among the stock exchanges of Malaysia, Singapore and Thailand that has been in place since September 2012. This initiative is one of the measures driven by the ASEAN Exchanges,1 a collaboration of seven stock exchanges within ASEAN (the Association of Southeast Asian Nations).2 With the objective of promoting the growth of the ASEAN financial markets by encouraging the free flow of capital, the ASEAN Trading Link is aimed at providing brokers of participating ASEAN stock exchanges with the appropriate trading infrastructure to input orders directly onto other participating ASEAN stock exchanges. The ASEAN Trading Link currently provides investors with a single point of entry into three of the largest ASEAN equity markets.

The launch of the ASEAN Trading Link was regarded as a crucial stepping stone towards better market integration and supporting the establishment of the ASEAN Economic Community, which is targeted for the end of this year.

ASEAN Trading Link Today

Specifically, the arrangement connects participating exchanges in order to facilitate cross-border trading and order routing via an electronic network. Stockbrokers can, therefore, directly deal in shares listed on a participating exchange, even though they do not have a trading license to operate in that particular jurisdiction.

It was initially anticipated that the ASEAN Trading Link would connect all seven equities markets of the ASEAN Exchanges by 2015. However, two years have passed since the launch of the ASEAN Trading Link, with just the Singapore Exchange Ltd. (SGX), Thailand Stock Exchange and Bursa Malaysia participating, and no further expansion has materialized. Trading volume via the ASEAN Trading Link has not been particularly strong, given low regional investor interest and since brokers in each of Malaysia, Singapore and Thailand were, in any case, able to transact on other ASEAN exchanges before the establishment of the ASEAN Trading Link.

Nevertheless, the Singapore regulator recently announced an intention for the ASEAN Trading Link to emulate the Hong Kong-Shanghai Stock Connect and be expanded to incorporate other Southeast Asian stock exchanges. The expectation is that an expanded ASEAN Trading Link will be better equipped to provide market access to more investors, both within the region and internationally. Within Southeast Asia, an expanded ASEAN Trading Link will likely provide more incentives for cross-listing foreign securities, which should lead to a larger and more liquid secondary market. International investors may also be attracted to the ability to invest in various participating Southeast Asian countries via a single shared portal.

An expansion to the programme, however, will first require some alignment of the different political and commercial interests among the 10 different ASEAN member states, which are at varying stages of development – with the SGX (as a globally advanced exchange) at one end of the spectrum and Myanmar (still in the preparatory stages of setting up its own exchange) at the other end. The range of sizes in the capital markets in the respective member states may also be an obstacle to full integration, since countries with less mature capital markets may prefer to prioritize their own growth over playing a more active role in such a programme. There are also concerns that listing will be concentrated in a select few reliable and highly liquid exchanges, thereby providing no benefit to the growth of exchanges that are in their early stages of development or, possibly, even hindering their progress. Overall, improvements in the trading environment and the related laws and regulations in ASEAN will also play an important factor in the possible expansion of the ASEAN Trading Link.

Recent Developments in Asia

Asia has been a hive of regulatory initiatives and activity in recent months, with the hottest topic being the highly-anticipated Hong Kong-Shanghai Stock Connect, which was launched with much fanfare in November 2014. The stock exchanges of Hong Kong and Shenzhen have also been exploring the possibility of establishing a Hong Kong-Shenzhen Stock Connect later this year to link the two exchanges.

The Singapore SGX and the Taiwan Stock Exchange Corporation (TWSE) have announced plans to form a stock trading link in June of this year. However, initial reactions to this proposal have been lukewarm, since investors in each country already have existing channels (via brokers) to invest in the other stock market. This is in stark contrast to the situation previously faced by investors of China’s A share market, which had been previously off limits to foreign investors, save for those who possessed appropriate investment quotas under the QFII3 or RQFII4 programmes.

The TWSE has also been busy with a separate proposed collaboration with the Tokyo Stock Exchange to develop a similar trading link, although there has been no indicated timeline for the launch of this proposed stock link.

The Future of the ASEAN Trading Link

With the challenges of expanding the ASEAN Trading Link in mind, it important to note the investment potential of ASEAN. This regional group has a combined GDP of US$2.4 trillion,5 making it the world’s 7th largest economy if it were to be regarded as a single country. The ASEAN Exchanges, when taken collectively (i.e., comprising all seven stock exchanges which are part of the programme), would rank among the top 10 stock exchanges globally, by market capitalization, with the potential to offer access to more than 3,000 listed companies. There is, therefore, incentive for the expansion of the ASEAN Trading Link to encompass all seven exchanges and, eventually, the remaining stock exchanges in ASEAN.

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